Protein tyrosine phosphatases play a crucial role in proliferation, differentiation, and transformation of cells. Among them, two SH2 domain-containing enzymes, namely SHP-1 and SHP-2, have attracted the most attention in recent years. Both SHP-1 and SHP-2 are important signaling transducers and potential targets for therapeutic drugs to treat blood disorders, cancer, and heart disease. Much is also known about the regulation of the enzymes and the consequences of their deficiencies. These two enzymes share significant overall sequence identity and are regulated by recruitment to tyrosine-phosphorylated receptors through their SH2 domains. However, they display opposite as well as common functions. The mechanism underlying this is not fully understood, and their precise functions in many cellular progresses are poorly defined. In earlier studies, we identified two immunoglobulin family cell surface proteins, namely, LAIR-1 and PZR that contain immunoreceptor tyrosine-based inhibition motifs (ITIMs). Through ITIMs/SH2 interactions, LAIR-1 and PZR specifically recruit SHP-1 and SHP-2, respectively. We have now generated monoclonal antibodies against the extracellular part of LAIR-1 and PZR. These antibodies induce tyrosine phosphorylation of the proteins and thus respective recruitment of SHP-1 and SHP-2. We have also purified cell membrane-permeable proteins carrying tyrosine-phosphorylated ITIMs of LAIR-1 and PZR. When introduced into cells, these membrane permeable, tyrosine-phosphorylated proteins respectively bind SHP-1 and SHP-2 and block their translocation and thus function. Our central hypothesis is that LAIR-1 and PZR play a maj or role in defining specificity of SHP 1 and SHP-2 and by using monoclonal anti-LAIR-1 and anti-PZR antibodies and membrane-permeable, tyrosine-phosphorylated proteins derived from LAIR-1 and PZR we can specifically modulate the functions of SHP-1 and SHP-2. In this study, we will thoroughly investigate the effects of these reagents on the development of human CD34+ hematopoietic progenitor cells in vitro and in NOD-SCID mice and on the activation ofT lymphocytes in vitro. We will further determine the binding affinity of SH2 domains of SHP-1 and SHP-2 with ITIMs of inhibitory receptors, co-crystallize SHP-1 and SHP-2 with specific tandem ITIMs, and identify two proteins that are hyper-phosphorylated when the functions of SHP-1 and SHP-2 are blocked. This study will not only provides a better understanding of the specific function of SHP-1 and SHP-2 but also reveals the regulatory role of LAIR-1 and PZR. The reagents generated in this study should serve as valuable tools to study cellular processes involving SHP-1 and SHP-2 and to develop therapeutic